Friday, May 10, 2013

Over the past twelve to eighteen
months, we've seen increasing resistance by various groups throughout the
United States and Canada to hydraulic fracturing. One of North America's
largest plays that requires hydraulic fracturing (or fracking) to produce economic
volumes of oil is the Bakken Formation in the Williston Basin located in the
northwestern United States. Since the Bakken is a relatively low
permeability and porosity formation (in areas where is does not produce oil in
a traditional manner), wells are drilled horizontally into the formation and
various materials (i.e. sand and other chemicals) are pumped down the hole to
create open fractures and increase permeability so that the oil will flow.
Think of oil reservoirs as a sponge; microscopic and macroscopic pores or
holes are either connected or they are not. If they are not connected,
fracking is required to connect the pores so that the oil will flow.

Let's open by looking at a map
showing the rough outline of the Williston Basin of Montana, North Dakota and
South Dakota:

Here is the entire stratigraphic
section typical of the Williston Basin showing which formations contain
petroleum:

Here is a map showing production by
geological age in the Williston Basin noting that the red dots show Bakken
production:

A recent assessment by the United States
Geological Survey (USGS) found that the Bakken shales, siltstones, sandstones
and clastic carbonates have an estimated mean total oil resource of 3.65
billion barrels and the underlying Three Forks shales, dolomites, siltstones
and sandstones contain an additional mean resource of 3.73 billion barrels of
oil. To put these numbers into
perspective, in 2012, the United States consumed an average of 18.55 million BOPD
or 6.77 billion barrels of oil over the year. The drilling of 4000 additional wells in
the Williston Basin since 2008 has given the USGS a clearer picture of the
total oil reserves for both formations, raising their 2008 estimates by a wide
margin. In addition to oil, the formations are estimated to contain an
additional 6.7 trillion cubic feet of natural gas and 530 million barrels of
natural gas liquids. In all cases, the hydrocarbons are sourced from the
radioactive, organic shales of the Upper and Lower Bakken

Here is a schematic diagram showing the
formations involved in a typical Bakken pool:

Production statistics from North Dakota show
just how quickly the Bakken play has grown. Back in January 2000, there
were 192 Bakken wells in the state producing an average of 10 BOPD with an
average well producing 318 barrels per month. By January 2013, there were
5162 Bakken producers, producing an average of 130 BOPD per well with an
average well producing 4045 barrels per month, a nearly thirteen-fold increase
over the period.

While all of the negative publicity
about the impact of fracking on the environment continues unabated, so does
drilling. Here is a graph showing the
rig count for the Bakken play since 1997:

The Bakken play has a huge impact on
the local economy in the area surrounding the current production operations.
How big is that impact? According to a recent Minneapolis Federal Reserve study, the
Bakken oil boom has led to both record low unemployment and much higher wages
in the counties surrounding the core of the Bakken play.

Here is a map showing how the
authors of the study correlated wage growth and unemployment levels with
distance from the Bakken activity:

Each dot represents a county's
centre point and each circle represents a 100 mile increase in distance from
the Bakken play.

Here is a chart showing the index of
average weekly wages since 2001 as the Bakken play was developed by distance
from the key area noting that the Bakken counties are in orange:

Here is a chart showing the
unemployment rate since 2001 by distance from the Bakken play again noting that
the Bakken counties are in orange:

Average weekly wages in the counties
immediately adjacent to Bakken activity rose by 140 percent since 2001 and
unemployment has fallen to under two percent, one-quarter of the national rate.
As one works outwards from the core of the Bakken activity, wage growth
appears to dissipate at a distance of more than 100 miles whereas, unemployment
levels are lower than the national average at distances as far as 300 to 400
miles away. Note that wage growth in the core area accelerated in the
after 2007 and continue to multiply at an increasing rate after 2009.

From the Minneapolis FRB study, we
can quite quickly see how significant the impact of a large oil resource play
can be on a local economy. It is also apparent that wherever oil
companies are exploiting hydrocarbon resource plays, there is likely to be
strong opposition to any reduction in the use of enhanced production techniques
like fracking since the local economies of these areas rely strongly on the oil
industry for their higher standard of living. It will definitely be an
uphill battle, particularly when one looks at how much better this area did
during the Great Recession than the nation as a whole.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.